Over the past several months I’ve been reading stories of dairy farms going under. Out of desperation some farmers are selling their cows for hamburger meat while a few have been driven to suicide. Dairy farmers are suffering the greatest crisis since the Great Depression. And I kept hearing the same message from farmers: the milk pricing system is destroying family dairy farms. Since 2000 the volatility of prices paid to farmers for their milk has been extreme while consumer prices have remained relatively flat.

What’s going on? A complex pricing system and foreign milk imports are artificially forcing milk prices so low that dairy farmers can’t even break even, must less make a living for their families. I spent some time talking with Herkimer County, New York dairy farmer and organizer Deb Windecker to learn more. I’m still putting all the pieces together but one thing seems very clear: the current milk pricing system is hurting our local dairy farmers.

Consolidation

During the Great Depression of the 1930s the dairy farmers were in crisis. As part of the provisions President Roosevelt set up to protect agriculture, farmers were allowed to form cooperatives that gave them collective power but were not considered to be in violation of antitrust laws. Cooperatives once dotted the landscape, serving their local communities. Now these cooperatives are consolidating into larger entities and leaving the interests of family dairy farms behind. One cooperative, Dairy Farmers of America, controls some 70% of the US market. Windecker says that “cooperatives have gotten bigger and have become like corporations. They’ve lost sight of who they’re supposed to represent. Now they favor the processors. They don’t even know who their members are anymore. When members ask questions they start trying to put the smoke out. They don’t represent the farmer member like they’re supposed to.”

Consolidation has hit the processing plants as well. Just a few short years ago, milk would travel to a local plant to be processed into pasteurized milk, butter, and cheese. In the past few years many of these small plants have been bought out by larger dairy companies–and shut down. “Before we knew it, we’d lost our communities,” Windecker says. “The money doesn’t stay in our communities. It goes to the big stores, the big companies, to wall street.” Worse, by law farmers must bear the cost of transportation; as they truck their milk farther and farther away from the farm to these large, centralized processing plants, their cost of operation rises higher and higher.

Windecker says that at least 10% of her family’s dairy business costs go to hauling their milk to a processor in Massachusetts. As long as processors benefit financially by consolidating their plants and do not bear the cost of farmers transporting their milk they have little incentive to respond to farmers’ concerns. And with the cooperatives putting processors first, “farmers aren’t allowed to sit at the table and negotiate.” Meanwhile, farmers continue to lose equity in their farms. With little equity and poor cash flow, banks are cutting lines of credits off from many farmers. There used to be normal attrition of farms going out of business and the next door neighbor would buy the farm and get bigger to allow for additional family members to enter the business. This time around, the next door neighbor will not have equity to take on more debt because everyone is losing money. The farm will be purchased by a real estate developer or a corporation–or it falls into the hands of a bank.
Big Cheese and the Chicago Mercantile Exchange

“A big part of milk pricing actually comes down to cheese,” Windecker tells me. Prior to 1981 prices paid to dairy farmers were based on parity–in other words, milk pricing was based on a composite of other related commodities like cheese–and was structured to respond to inflation in order to protect farmers and consumers alike. In the 1980s this policy changed, based on the notion that the market alone could regulate milk pricing. Now the prices farmers get for the milk are based partly on dairy shares traded on the Chicago Mercantile Exchange (as are many other commodities). As the dairy industry became more and more consolidated it has fallen into the hands of just a few, powerful industry players who make just two or three trades a month. In fact, it’s mostly cheese that is traded. Only about 1% of the US dairy supply is traded on the CME yet it is this trading that sets the price of milk for all dairy farmers.

When you have such an imbalance of power within the industry “this is not a simple matter of supply and demand,” Windecker says.

Additionally, prices are based on cheese inventory. The USDA conducts surveys of cheese inventory at processors. When processors report an oversupply of cheese (this reporting is voluntary), this pushes the price of milk down further, even though liquid milk is considered in a different class than cheese. Windecker feels the processing industry benefits from farmers’ confusion over the pricing system. “It’s almost like they don’t want you to understand it,” she says.

Imported Milk

About that cheese traded on the CME? Much of it is made with imported dairy products, not from US milk. In fact, those individually-wrapped cheese singles are often made with imported “milk protein concentrates,” a substance originally developed for glue and not approved by the FDA as a food ingredient. (Cheese singles produced with milk protein concentrates are labeled “processed cheese product” instead of just “cheese.”) Needless to say, imported milk protein concentrates are much less expensive for large processors to use than US-produced real milk. According to Windecker, importing milk products are driving the price of cheese down, which in turn drives down the price of milk. She feels there is a lack of transparency in the effect imports have on domestic milk prices–and what that says for the future of American family dairy farms. “This is my biggest fear for my children: if we become reliant on other countries for our food we’ve lost our country and our national security.”
Dairy Farmers Need Your Support Now

According to Windecker, you can see the crisis in the faces of dairy farmers. “We’re going on 16, 17 months of being paid as low as 97 cents a gallon for regular, conventional milk. Even the organic market sees the vertical integration. No matter what the farmer does, producing organic is more expensive to produce. We need to bring the processing back closer to the farmers. We need about $1.50 a gallon just to break even, and that’s not even giving yourself a fair wage, it’s just your base costs.” She estimates that up to 20% of the dairy farmers will be out of business by the end of the 2010.

Meanwhile, US Department of Justice antitrust investigator Christine Varney is holding a meeting with Senator Chuck Schumer on March 29 to hear consumer and farmer concerns about milk processors’ consolidation. If you can’t travel to Batavia for the hearing you can write in your comments to dairymeeting_schumer@schumer.senate.gov. Senator Kirsten Gillibrand is also working to support dairy farmers. She recently introduced legislation for country of origin labeling for dairy, which needs support from consumers, not just farmers.

“Farmers are so busy. My husband is up by 5 a.m. every morning and doesn’t get home until 7 p.m. every night. We don’t have time to make several trip to Washington and we don’t have the money for lobbyists. Consumers and citizens have a lot of power. That’s what democracy is supposed to be about. I work full time off the farm. My children are 10 and 13. they come home and we work as a family to keep the farm. We want to produce fresh, wholesome food. It’s such a noble feeling to know you’re producing food for the country; however, we deserve to be paid a fair price that covers our production costs.”

Keep Local Farms is an education and contribution program in New England that connects consumers with local dairy farmers and allows those who are interested in purchasing local foods to support their local farmers.

What if you went to the state fair and the meat-on-a-stick was pasture-raised Berkshire pork? The grilled corn organic and covered in queso blanco from grass-fed milk? What if you could talk with the farmers and finally learn why they decided to turn to sustainable agriculture? What if you could ... Continue reading →